Market Penetration

Definition

Market or brand penetration is a measure of brand (or category) popularity. It is defined as the number of people who buy a specific brand or a category of goods at least once in a given period divided by the size of the relevant market population.

Market penetration is one of the four growth strategies of the Product-Market Growth Matrix as defined by Igor Ansoff. It occurs when a company penetrates a market in which current or similar products already exist. The best way to achieve this is by gaining competitors’ customers (part of their market share). Other ways include attracting non-users of your product or convincing current clients to use more of your product/service (by advertising, etc.).

Ansoff developed the Product-Market Growth Matrix to help firms recognize if there was any advantage to entering a market. The other three growth strategies in the Product-Market Growth Matrix are:

product development (existing markets, new products)

market development (new markets, existing products)

diversification (new markets, new products)

Purpose

Often, managers must decide whether to seek sales growth by acquiring existing category users from their competitors or by expanding the total population of category users, attracting new customers to the market. Penetration metrics help indicate which of these strategies would be most appropriate and help managers to monitor their success. These equations might also be calculated for usage instead of purchase.

Construction

Market penetration can be defined as the proportion of people in the target group who bought (at least once in the period) a specific brand or a category of goods. Two key measures of a product’s popularity are penetration rate and penetration share. The penetration rate (also called penetration, brand penetration or market penetration as appropriate) is the percentage of the relevant population that has purchased a given brand or category at least once in the time period under study.

A brand’s penetration share—in contrast to penetration rate—is determined by comparing that brand’s customer population to the number of customers for its category in the relevant market as a whole. Here again, to be considered a customer, one must have purchased the brand or category at least once during the period.

Methodologies

Brands and product penetration can be recorded by companies such as AC Nielsen and TNS who offer panel measurement services to calculate this and other consumer measures. In these cases penetration is given as a percentage of a country’s households who have bought that particular brand or product at least once within a defined period of time.